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Dec 13 President Xi Jinping & Chinese Investment in Football

The President of the People's Republic of China is reportedly a passionate football fan. This picture of Xi Jinping, taken in October 2012 when he was Chinese Vice President, smashing one into Row Z at Croke Park Stadium in Dublin, was seen on his office shelf during the broadcast of his 2014 Chinese New Year address.

But before he became one of modern China's most powerful leaders, Xi Jinping reportedly fell in love with the beautiful game as a child, and played football while he attended school in Beijing. Born in 1953, only 4 years after the People's Republic of China was established by Mao, Xi Jinping played football throughout the 1950's and 1960's alongside other second generation communist revolutionaries. According to his wife, Peng Liyuan, he has often stayed up late to watch matches played abroad on the television and has even publicly visited the school he attended as a child where he became a fan of the game and learned how to play.

Prior to being appointed the President of the People's Republic of China, Xi Jinping announced his own ambitions for the country within the footballing world in 2011: to qualify for the tournament, host the event, and one day, win the FIFA World Cup.

A selfie of Xi Jinping and Sergio Aguero with ex-British Prime Minister David Cameron weasling his way in.

Xi Jinping has since become one of China's most powerful modern leaders and even broke with precedent recently by refusing to anoint a successor. Instead he has surrounded himself with 6 party loyalists, all of whom are too old to ever replace him.

Seeking to project China as a world leader in combatting protectionism and supporting globalisation, Beijing relaxed rules on foreign investment a few years ago. This in turn saw Chinese companies embark on an enormous overseas shopping spree, acquiring companies in a variety of industry sectors, from telecommunications companies & hydroelectric power plants, to luxurious hotels and football clubs.

What may have initially sparked the monumental influx of foreign investment in European football, is an interview President Xi Jinping gave in October 2015 during a state visit to the United Kingdom. In this interview, he is quoted:

“Football is the world’s first sport, with the world’s largest fans, there are hundreds of millions of fans in China. My greatest expectation of Chinese football is that it can rank among the top teams in the world”

— President Xi Jinping Oct. 2015

President Xi Jinping's state visit to the UK also saw him visit Manchester City FC during a mid-week training session, further demonstrating his passion for football and interest in the international football industry. In the grand scheme of things, the state visit may have indirectly encouraged private investors eager to gain favour with his government.

“China will deepen the reform of the football system and take the goal of developing youth football, reforming the football occupational system, strengthening international cooperation and expanding the soccer industry as the starting point and stepping out of a football development path that is both in line with the law of football development and suitable to China’s reality”

— Xi Jinping, October 18 2015

Beginning in November 2015, a wave of foreign investment swept over football as Chinese entities acquired majority stakes in top European clubs. See below a list of some of the significant acquisitions made by Chinese firms since 2015:

Jackson Martinez signing for Guangzhou Evergrande in March 2016.

According to Dealogic, Chinese companies spent a record $200 billion on overseas investments in 2016. The extent to which Chinese entities poured money into football clubs across Europe is staggering. It surely can't be a coincidence that CMC Holdings & CITIC Capital purchased a 13% stake in City Football Group only 2 months after Xi Jinping's visit to Manchester City's training ground on his UK state visit.

In the broader picture, it wasn't just Chinese entities acquiring large stakes in European clubs, many Chinese Super League owners saw the relaxation of rules on foreign investments as an opportunity to recruit some of the world's most talented football players and bolster their wage structures. See below a list of the most notable signings completed by Chinese Super League teams since 2015:

In 2016, the 16 Chinese Super League teams spent around $300 million signing foreign footballers, even outstripping player spending in the English Premier League by nearly $120 million, according to FIFA TMS.

Former Zenit St. Petersburg manager, Andre Villas Boas, and striker, Hulk in the colours of Shanghai SIPG.

Some of the biggest transfers to the Chinese Super League included Oscar, Carlos Tevez, Jackson Martinez and Ramires, who headed to four of China's biggest clubs for a combined total of £175 million. Carlos Tevez alone will earn around £64 million over the course of two years with Shanghai Shenhua thanks to a weekly wage of approximately £615,000.

But what does this mean for football in China?

In general, average match-day attendance records are considered a decent measure of the performance of a football league, and in this sense, the Chinese Super League looks relatively healthy:

Average attendance has steadily increased over the last few years - largely as a result of the significant investment in foreign superstars by the CSL. But professional football in China might not necessarily be in that great of a shape all things considered.

Outlandish transfers fees and extravagant weekly salary agreements for foreign players has almost crippled Chinese Super League clubs financially. The main newspaper of the Communist Party, People's Daily, warned in December 2016 of a 'bubble' of reckless spending that could burst and badly damage the sport.

According to Forbes' Andrew Brennan, the inflated total of overseas spending, which was $1.15 billion as of January 2017, significantly outweighs 'the economic value brought to the CSL through viewership, foreign investment and value.'

The influx of foreign talent has made the league more attractive to watch, but in the bigger picture, it is having a negative effect on the performance of the national team, and the overall development of football in China. Extravagant signings has created a lack of opportunities for aspiring young Chinese players in their domestic leagues, and weekly salary budgets are being prioritised over youth development programs at various Chinese Super League teams. The Chinese national team subsequently sit 67th in the FIFA World rankings, and will not be attending next year's FIFA World Cup in Russia.

Chinese National Team at the 2002 FIFA World Cup

Indeed the national team has remained largely absent from the world stage since its formation in 1924. They have only qualified for a single tournament, the 2002 FIFA World Cup in S.Korea & Japan, where they quietly exited the group stages, losing all 3 matches without scoring a single goal. For a country with a population of 1.4 billion people, which accounts for 18.67% of the world's total population, it is surprising they are not more competitive.

Beijing's CrackDown on Outflows

Gao Jisheng somehow still managed to acquire 80% of Southampton FC in August despite recent restrictions.

The extent of Chinese investment in overseas markets has increased downward pressure on the yuan this year, and has forced the government to step up restrictions on capital outflows and divert investments into sectors that align with national economic and strategic interests.

The new rules, announced in April 2017, prohibit investments in core military technologies, as well as the sex & gambling industries, and places restrictions on outbound deals in property, hotels, entertainment and sports clubs.

The impact of these recent regulations has had a dramatic effect - outbound deals dropped 40% to $74 million in the first half of 2017, according to Dealogic.

This won't be good news for newly acquired European football clubs dependent on financial aid from their stakeholders, as Chinese owners take a step back from their initial promises of significant financial assistance over the coming years.

What's more is that the Chinese Football Association has placed restrictions on Chinese Super League clubs from signing foreign players. From now on, clubs in debt must match the transfer fee of a foreign player with a donation to a specific development fund.

Despite these things, according to KPMG's Football Benchmark, the Chinese sports industry is expected to reach €386 billion by 2020 and football will undoubtedly play a major role within that, but only if the country can 'create a modern, commercially-oriented football economy.'

Recent market signals would suggest that Chinese football is moving in the right direction, with the five-year renewal of Ping An Insurance’s main league sponsorship bringing in €128 million. Similarly media rights have increased with China Media Capital’s (CMC) deal to pay RMB 8 billion (above €1 billion) over the 2016-2020 cycle.

In the long term however, it is difficult to predict what sort of effect these recent developments will have on China and its football industry. The Chinese Super League has definitely captured the attention of its European footballing counterparts, but it is impossible to say if and when it will ever reach parity with any of the top 5 European leagues.

What is clear, is Xi Jinping's love of the game, which has even prompted numerous foreign leaders to bear football related gifts to appease the President of the People's Republic of China. His passion for football has significantly encouraged Chinese investment in the sport over recent years, both domestically and abroad, and it will be interesting to see the development of Chinese football in years to come.